Yongda to expand outlets on IPO cash

Mainland car dealer China Yongda has drawn up an ambitious plan to add 25 dealership outlets this year, which it plans to fund with the HK$3.37 billion it seeks to raise in its Hong Kong initial public offering.

The second-largest trader of luxury brands such as Audi and BMW in eastern provinces said it also aims to become a leader in the used luxury car segment. Yongda expects used car sales to grow robustly and make up 25 per cent of total car sales in the next three to five years.

The Shanghai-based dealer said it plans to invest 50 per cent of the funds raised, or around HK$1.24 billion, to open new outlets and 35 per cent on possible acquisitions, while the rest will be used as working capital and to expand existing outlets.

Yongda's plans fly in the face of a flurry of news about thinning profit margins for dealers in the world's largest car market.

According to Gasgoo, an information portal for mainland's car industry, the profit margin of the top four mainland dealers was down to 7.3 per cent last year from 7.5 per cent a year ago.

Dealers, who did not want to be named, said they have had to offer huge discounts in past months to draw buyers as the economy slowed.

But Cai Yingjie, the vice-chairman and general manager of Yongda, said the company's 4S outlets had not seen losses. 'Our profit level has been well within our expectations and sales of high-end vehicles have grown at an annual rate of over 30 per cent. We expect growth to continue.'

The company's net profit last year jumped 30.9 per cent year on year to 504.8 million yuan. However, the value of its inventory also surged 85.9 per cent to 2.1 billion yuan, while trade receivables, or the money owed to the company, also went up by nearly a quarter to 119.4 million yuan.

Yongda's deputy general manager Dong Ying said despite the jump the amounts were still relatively small in comparison to turnover, which stood at 20.3 billion yuan last year.

'The turnover period of our inventory was just 31 days, which is a pretty healthy level. Also, 99 per cent of our receivables were already settled as of March 31.'

Cai expects sales of second-hand cars to fuel the business in the near future. 'Used-car trading makes up a meagre portion of the overall trade today, but in three to five years, we expect it to make up a quarter of the total car sales in China. For our company, that will happen even sooner.'

Yongda, which starts the public offering today, and will list on May 30, said it will open its first used-BMW trading centre before the end of this year.

30.9%

Yongda's profits jumped by this much year on year last year